The chipmaker, which issued an earnings warning Thursday, plans to reduce prices by up to 11 percent on desktop chips including the Pentium 4, Intel's fastest processor, sources said.
Intel released the Pentium 4, a microprocessor that will form the bedrock of the company's business for the next few years, on Nov. 20. Questions about the chip's performance have lingered from the beginning.
While the Pentium 4 has scored well on multimedia applications, benchmark testers and analysts have said that chips from rival Advanced Micro Devices outpaced initial Pentium 4 chips on business applications. The new chip's potential won't kick in, experts say, until more software tuned to the Pentium 4 comes out.
The largest reduction is planned for Intel's 1.4-GHz Pentium 4. The entry-level Pentium 4 chip will be reduced from its introductory price of $644 to $575, sources said.
The 11 percent price cut will likely be reflected in slightly lower prices on PC makers' entry-level Pentium 4 systems.
Intel's fourth-quarter earnings warning pointed to large order cancellations by some customers, due to flagging PC demand. However, this latest price cut does not appear to be related to Intel's financial troubles.
Instead, the cuts likely stem from Intel's desire to quickly move Pentium 4 chips into the mainstream.
The chipmaker notified PC makers of the cuts about 30 days ago, according to the sources. The cuts are expected to go into effect this weekend.
Pricing on Intel's fastest 1.5-GHz Pentium 4 will remain at $819, while the 1-GHz Pentium III will continue to sell for $465.
Desktop Pentium III chips also cut
Intel will also cut prices on several desktop Pentium III chips, the sources said.
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Price cuts on those chips will range between about 6 percent and 10 percent. Intel's Pentium III 750 MHz, for example, will be reduced from $193 to $173, sources said, whereas Intel had previously planned to wait until January to trim the price tag.
Intel will also reduce prices on certain desktop Celeron chips as it prepares to introduce faster Celerons early next year.
Intel will cut the price of its 766-MHz Celeron from $170 to $155, sources said.
An 800-MHz Celeron with a 100-MHz front side bus is expected in January.
Intel is expected to hold off reducing the price of the 1.5-GHz Pentium 4 until late January. At that time, the chipmaker is expected to reduce the price of the chip to about $644. The 1.4-GHz Pentium 4 is also expected to see another price cut in January. Its new price will be about $510, sources said.
Rival chipmaker Advanced Micro Devices is also expected to reduce prices in January, when it plans to introduce new processors, including an 850-MHz Duron chip, sources said.
Prices listed reflect Intel's 1,000-unit prices or the lowest prices the company quotes to PC makers. Prices on individual processors sold via retail may be higher.